Stocks finished the week with the best gains in a long time.  Everything is rosy and everyone thinks the rally will go on forever.  In reality this is just a bear market correction, and will trap some happy bull thinkers.

Bonds moved sideways both days.

The dollar moved sideways too with a slight strengthening by the Euro, but not the Yen or Swiss Francs.

Oil and gasoline both moved up the past 2 days.

Gold continued its rallying comeback after its profit taking fall to below $900/ounce.  

In the news today…..

The Trade Deficit was $36B in January which is a reduced trade deficit for each of the past 6 months. Here are some of the details for you to ponder:

1. The oil price decline caused the biggest reduction in imports.
2. Both imports and exports declined – so we are also selling less overseas – bad news for our factories.
3. The Trade Deficit with China GREW 3.5% – and this was caused by less exports to China.

Only a zero Trade Deficit followed by Trade Surpluses could solve our long term economic problems.  What is the chance this will happen??  Not too great as oil price imports will increase in coming months, and we’re doing nothing to pump US based oil to stop these massive dollar outlays.

China has told the US that they don’t want the US to devalue the Dollar – through “reckless spending.”  China is concerned with the same thing I have been reporting as a big possibility – inflation in the US followed by reduced Dollar exchange rates.  China is just talking about its own self interest.  While it is maddening to have China lecture the US on its “reckless spending”, China’s advice is much more sound that all the words coming out of Congress right now.  Hard to believe, isn’t it??

Here are the last numbers for the past 2 days (first delta is today/second delta was yesterday):
Dow Jones 30 Industrial – 7169 (up 54/239 points)
10 Year Treasury Bond – 2.91% (down 0.01%/0.01%)
Euro – $1.2928
Gold – $930 (up $6/13)
Oil – $44.56 (down $0.78/up $2.47)
Gasoline – $1.35 (up $0.01/$0.09)  

Oil and gasoline both fell.  Oil a lot, and gasoline just one cent.  Oil is testing its lows, and gasoline is 35% higher than its lows.  This shows a lot of manipulation to me.

Gold continued to rally – going up $5.  Great news for gold.

In the news today….

Retail Sales were up 1% in January.  This headline makes everyone happy, but the market was smarter than usual today as it read on.  November and December’s retail sales were both modified DOWN 0.3%.  This means the 1% Jan increase wasn’t as great as stated as it’s starting from a lower point.  The increase in January retail sales was caused by the great post Christmas sales (which is now over) and an increase in gasoline sales (as prices have crept up).

Jobless Claims hit 623,000 last week. This indicates the continuation of lost jobs across the US.  Bad news indeed.

Foreclosures dragged down House Prices in 4th Q 2008 to a median value of $180,000, or down 12.4% year over year.  Here are the details:

1. House prices were down in 134 of 153 metropolitan areas
2. House prices were up in 18 metropolitan areas (hurrah – but not enough to break open the champagne yet.)
3. 45% of home sales were “distressed” sales – in other words, foreclosures.  This was 37% in the 3rd Q 08.  So more sales are now coming from the “very cheap” properties, and this is to be expected.  We must get the foreclosure inventory off the books, and that isn’t about to happen soon, as they continue to hit the books.
4. The total sales in the 4th Q when annualized is 4,700,000 homes.  Unfortunately, this is not a big enough number to knock down the inventory of “homes for sale” which is over 10 million.

Tonight’s Dinner Conversation….

The Trade Deficit was down 3.3% in 2008 over 2007, and was $677.1B.  

December’s Trade Deficit was $39.9B (or about $500B/year).  Imports were down 6%, and exports were down 5.5%.  This is a great indication that global trade is collapsing (Oops, I’m using those scare tactics that I learn from politicians).  When trade goes down 5 or 6% in a month, it is collapsing by anyone’s definition.

So, here is the topic for you to discuss tonight.  What does this Trade Deficit mean to you????  Here is what to take into consideration during your talk.

1. Is the decrease in the Trade Deficit good news for YOU?  Remember, we are selling LESS overseas as well as buying less.  The trade deficit is the difference between imports and exports.  They could both go down the same amount, and leave the deficit unchanged.
2. What happens to all that Trade Deficit money?  2008 this was $677.1B, and if trade doesn’t decrease more in 2009, it should be about an additional $500B in 2009.
3. FED Chairman Bernanke two days ago in his Congressional testimony answered the following question: “What was the cause of the current crisis?”  His answer was “The route cause of the current crisis is the capital influx to the US from our Trade Deficit.”  (I heard these words myself when he was giving the testimony.)
4. Have we seen the end of bubbles?

This is exactly what I’ve been telling you from the beginning of the economyguy.  Our Trade Deficit, as caused by the Bretton Woods Agreement, making the US Dollar the Reserve Currency of the world, produces liquidity bubbles in the US, and makes our imports very cheap.  But the “good life” can’t go on forever (obviously now!!!)

The important point from Bernanke is what he DIDN’T say.  He didn’t say the “housing bubble”, or “greedy Wall St. exec’s”, or “Congressional pressure to provide mortgages to people who can’t pay”, or the other dozen things that went wrong in our housing meltdown.  He considers all these things as secondary to having the liquidity (money) there to create the bubble in the first place.

Here are the last numbers:
Dow Jones 30 Industrial – 7933 (down 7 points)
10 Year Treasury Bond – 2.73% (down 0.04%)
Euro – $1.2866
Gold – $949 (up $5)
Oil – $33.98 (down $1.96)
Gasoline – $1.26 (down $0.01) – the last time oil was $34, gasoline was below $1.00 – what’s going on

The Dollar gained against the Euro, but not anything else, as markets are betting the Euro countries will be reducing interest rates soon.  Gold moved sideways.

Oil went sideways, but gasoline went up a lot.  This continues to be a totally irrational gasoline market, and has “manipulation” written all over it.

In the news today….

The US Trade Deficit narrowed significantly in November – down 28.7% from the previous month.  The trade deficit was $40.4B for November.  This was due to the decrease in oil prices mostly, but also included decreases in imports with little decrease in exports (only down 5.9%).  The trade deficit with China decreased 17.5% to $23.1B.  It is interesting to note that the trade deficit with China is more than half of our trade deficit.

There is still no natural gas flowing from Russia through Ukraine to Europe.  This continues to be a worrying issue.  I hope this goes away soon with some sort of agreement among the parties involved.
 

Here are Today’s numbers:
Dow Jones 30 Industrial – 8449 (down 25 points)
10 Year Treasury Bond – 2.30% (down 0.01%)
Euro – $1.3192
Gold – $821 (no change)
Oil – $37.78 (up $0.19)
Gasoline – $1.15 (up $0.06) – totally irrational today.